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What you need to know What is a product and where it sits within the extended marketing mix Difference between consumer and industrial products Value of product portfolio analysis (including Boston Matrix) Value of product life cycle model and extension strategies Influences on and the value of new product development
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Products & Product Portfolios
3.3 Decision making to improve marketing performance What you need
to know What is a product and where it sits within the extended
marketing mix Difference between consumer and industrial products
Value of product portfolio analysis (including Boston Matrix) Value
of product life cycle model and extension strategies Influences on
and the value of new product development Importance of Product in
the Traditional Marketing Mix
Price Promotion Place Products are at the heart of marketing The
product needs to exist for the other elements of the mix to happen
Products Link Closely With
Segmentation Target Market Market Research Positioning Product Life
Cycle Adding Value Products in the Extended Marketing Mix
Price Promotion Place People Process Physical A product is anything
that is capable of satisfying customer needs
What is a Product? A product is anything that is capable of
satisfying customer needs The Layers of a Product Core Value
Augmented Product Actual Product
Pre-sale Support Brand Name Core Value Quality Warranty Design
Features Packaging After-sale service Source: Kotler, Armstrong,
Harris & Piercy; Principles of Marketing Consumer and
Industrial Products
Consumer Products Bought by final consumers for personal
consumption Differ in they way consumers buy them Industrial
Products Bought for further processing or for use in conducting a
business Bought by other businesses, not consumers Three Main
Categories of Consumer Products
Convenience Products Bought frequently Little planning or shopping
effort Low customer involvement Shopping Products Bought less
frequently Customers careful on suitability, quality, price, brand,
style etc. Speciality Products Unique characteristics or brand
Buyers make a special effort when buying Shopping Products:
Emphasis of Marketing Mix
Convenience Products PRICE Tends to be low PLACE Widespread
distribution PROMOTION Mass promotion Bought frequently Little
planning or shopping effort Low customer involvement Convenience
Products: Emphasis of Marketing Mix
Shopping Products PRICE Tends to be higher PLACE Selective
distribution (fewer outlets PROMOTION Advertising by producer and
resellers Bought less frequently Customers careful on suitability,
quality, price, brand, style etc. Speciality Products: Emphasis of
Marketing Mix
PRICE High PLACE Exclusive distribution or limited outlets
PROMOTION More carefully targeted Unique characteristics or brand
Buyers make a special effort when buying Three Main Kinds of
Industrial Products
Materials & Parts Raw materials, components etc. Mostly sold to
other industrial users Price and service key issues Capital Items
Industrial products used in production or operations E.g. IT
systems, buildings infrastructure Supplies and services Operating
supplies (e.g. energy) and business services (e.g. maintenance,
security) Key Features of Marketing Industrial Products
EXPLANATION Specialist buyers and sellers Buyers are businesses
will have specialist requirements and more experience. Often
dealing with professional buyers Buyer-seller relationship Strong
emphasis on customer relationship management and repeat business
Transaction value Purchase value often substantial in a single
transaction (e.g. bulk purchase contract) Quality and Price Greater
emphasis on product quality and price (where there are acceptable
alternative products). Price is often negotiated by the buyer
Support Greater requirement for after-sales support Product Life
Cycle A theoretical model which describes the stages a product goes
through over its life Key Uses of the Product life Cycle
Model
Forecast future sales trends Help with market targeting and
positioning Help analyse & manage the product portfolio Stages
in the Product Life Cycle
Development Introduction Growth Maturity Decline / End Product Life
Cycle model can be applied to a: Product category Style Brand or
model Product Life Cycle Chart
SALES & CASH FLOW () Sales Cash Flow DEVELOPMENT GROWTH
MATURITY DECLINE INTRODUCTION TIME Development Stage Often complex
Absorbs significant resources
May not be successful May involves a long lead time before sales
are achieved New Product Development
Time consuming but CAD is reducing product development times The
cost of development rises as it approaches launch Market research
including a test launch often done to reduce the risk of product
failure Most new product ideas do not reach the launch phase Why
New Products Are Scrapped Before Launch
Inadequate demand Action of competitors Change in the external
environment Production problem High costs Does not fit in the firms
productrange Life cycle expected to be too short Introduction Stage
New product launched on the market
Low level of sales Low capacity utilisation High unit costs Usually
negative cash flow Distributors may be reluctant to take an
unproven product Heavy promotion to make consumers aware of the
product Strategies at the Introduction Stage
Aim encourage customer adoption High promotional spending to create
awareness and inform people Either skimming or penetration pricing
Limited, focused distribution Demand initially from early adopters
Growth Stage Expanding market but arrival of competitors
Fast growing sales Rise in capacity utilisation Product gains
market acceptance Cash flow may become positive Unit costs fall
with economies of scale The market grows, profits rise but attracts
the entry of new competitors Strategies in the Growth stage
Advertising to promote brand awareness Increase in distribution
outlets - intensive distribution Go for market penetration and (if
possible) price leadership Target the early majority of potential
buyers Continuing high promotional spending Improve the product -
new features, improved styling, more options Maturity Stage Slower
sales growth as rivals enter the market = intense competition +
fight for market share High level of capacity utilisation High
profits for those with high market share Cash flow should be
strongly positive Weaker competitors start to leave the market
Prices and profits fall Strategies for Mature Products
Manage capacity & production Promotion focuses on
differentiation Persuasive advertising Intensive distribution Enter
new segments Attract new users Repositioning Develop new uses
Market saturation and/or competition
Decline Stage Falling sales Market saturation and/or competition
Decline in profits & weaker cash flows More competitors leave
the market Decline in capacity utilisation switch capacity to
alternative products Reasons Why Products Enter the Decline
Stage
Technological advance Changes in consumer tastes and behaviour
Increased competition Failure to innovate and develop the product
Strategies for the Decline Stage
Maintain market share Harvest by spending little on marketing the
product Rationalise by weeding out product variations Price cutting
to maintain competitiveness Promotion to retain loyal customers
Distribution narrowed Extending the Product Life Cycle
Lower price Change promotion (e.g. new promotional message) Change
product - re-styling and product improvement Look for alternative
distribution channels Develop new market segment Find new uses for
the product Reposition the product Weaknesses of the Product Life
Cycle Model
The shape and duration of the cycle varies from product to product
Strategic decisions can change the life cycle It is difficult to
recognise exactly where a product is in its life cycle Length
cannot be reliably predicted Decline is not inevitable Example of
the Product Life Cycle: Apple iPod
Global Apple iPod sales from 2006 to 2014 (in million units)
Examples of the Different Stages in the Product Life Cycle:
Consumer Electronics
Development Launch Growth Maturity Decline Consumer drones
developed out of sophisticated military use Examples of the
Different Stages in the Product Life Cycle: Consumer
Electronics
Development Launch Growth Maturity Decline Apples launch of iWatch
expected to fuel growth of global wearable technology market
Examples of the Different Stages in the Product Life Cycle:
Consumer Electronics
Development Launch Growth Maturity Decline Sales of Ultra HD
displays (TVs, monitors etc) are one of the fastest-growing
segments of the display market Examples of the Different Stages in
the Product Life Cycle: Consumer Electronics
Development Launch Growth Maturity Decline LED TV sets are a
well-established and mature product the global market is now
growing quite slowly Examples of the Different Stages in the
Product Life Cycle: Consumer Electronics
Development Launch Growth Maturity Decline The number of DVDs
bought in the UK is in sharp decline as consumers switch to online
streaming Product portfolio Product Portfolio is the range of
products or brands provided by a business Product Portfolio
Analysis
Product portfolio analysis assesses the position of each product or
brand in a firms portfolio to help determine the right marketing
strategy for each Boston Consulting Group developed this as a tool
of portfolio analysis
Boston Matrix Boston Consulting Group developed this as a tool of
portfolio analysis It can be applied to the portfolio of products
produced by a firm or the portfolio ofbusinesses owned by a firm
Portfolio is the collection of businesses or productsthat make up a
business Boston Matrix in Summary
Firms should analyse their portfolio (collection) of products
Products are categorised as: Question marks (also known as problem
children) Stars Cash cows Dogs The ideal is that firms should aim
for a balanced portfolio with some products in each category
Drawing the Matrix Comparison with the Product Life Cycle
Is concerned with individual products Is concerned with sales over
time The Boston Matrix Is concerned with the firms portfolio of
products Focuses on cash flow from products Axes of the Boston
Matrix
Relative market share This is expressed not as a % but share in
relation to other firms in the market A measure of the
firms/products strength in the market Market growth % rate of
growth of sales in the market Measure of market attractiveness From
this we derive four cells as a means of analysing products Question
mark Products
Low share of a rapidly growing market Cash flow is negative Have
potential but the future is uncertain Could become either a star or
a dog Strategy for Question Marks
Invest to increase market share Substantial investment to achieve
growth at the expense of powerful competitors Invest in promotion
and other aspects of marketing Build selectively High share of a
rapidly growing market
Star Products High share of a rapidly growing market Position of
leadership in a high growth market The product/business is
relatively strong and the market is growing Require high marketing
spending Net cash inflow is neutral or at best modestly positive
Investment to sustain growth Build sales and/or market share
Strategy for Stars Investment to sustain growth Build sales and/or
market share Spend to keep competitors at bay Invest to maintain or
increase leadership position Repel challenges from competitors High
share of a slowly growing market
Cash Cow Products High share of a slowly growing market Mature
stage in the product life cycle Mature, successful product Dominant
share Little potential for growth Large positive cash inflow Aim
for short term profits Little need for investment
Strategy for Cash Cows Defend market share Aim for short term
profits Little need for investment Little potential for further
growth Reduce investment in order to maximise short term cash flow
and profits Use profits from cash cows to invest in new products
Dog Products Dogs are either Low share of a slowly growth
market
Productsthat havefailed or Products that are in the decline phase
of their life cycle Low share of a slowly growth market Not going
anywhere & no real potential Phase out or sell off (divest) Not
worth investing in
Strategy for Dogs Phase out or sell off (divest) Not worth
investing in Any profit made has to be re-invested just to maintain
market share Uses up more management time and resources than can be
justified Divest or, at most, focus on a defendable niche How
Valuable is the Boston Matrix Model?
A useful tool for analysing product portfolio decisions But it is
only a snapshot of the current position Has little or no predictive
value Focus on market share and market growth ignores issues such
as developing a sustainable competitive advantages